Learning to Day Trade - Part 1

Beginnings

I’ll be using these “learning to day trade” posts to document my progress as a trader. I don’t think I’ll log my trades here unless one ends up being amazing. In that case I’ll post multiple charts and reasonings for why I entered and exited.

Day trading, short term trading, swing trading, or whatever you want to call it is buying or shorting stocks and only holding the position for several minutes, hours, or days - never long term. Long term investment to grow an account is simply not possible. Buying and holding blue chip stocks will never dramatically increase your account size because they just don’t move very much.

This is where penny stocks come in ($1 to $10). They are lower priced so they allow you to take larger positions and can sometimes double in a day. It’s rare, but it can happen. Usually you can see 30c to 50c moves either up or down. The volatility is what allows you to grow an account. Lately, there have been stocks under $20 that make $1 to $5 moves. On 100 shares @ $20/share ($2,000 position size) that is $100/$500 potential gain. That is significant. There are limits but you can usually take 5,000 shares after you build up the account and increase your gains from $100 ($1/share increase) to $5,000.

My First Experience

In 10th or 11th grade we had a finance class once a week that had a stock market segment. We had a basic web based simulator where we could buy and sell stocks. There was no real information given like fundamentals or technical analysis. We just had the price and a way to find stocks in a giant list. At the end of the month we’d see who had the largest gain. I know it wasn’t me. I bought $INTC and probably $F then some random company’s. Certainly not penny stocks. I never really cared about the stock market after this until several years later in 2016.

2016 - How I Got Started

Ever since I heard $AMD was basically a penny stock and trading at $2 a share, I wanted to get in. I went to E-Trade and thought about signing up. This was late 2015. I didn’t sign up because I wasn’t sure how taxes would work and I didn’t want to deal with that. I never signed up until 2016.

In 2016, I opened an E-Trade account. This is the broker that literally everyone knows of. I tried trading two different stocks that I heard about. $MRO and $RAX. I bought a few shares of each with my $500 account. I first watched the level 1 quotes for a few days (no charts at all) before I even placed a trade. I eventually tried timing it and attempted to hop on when the stock started going up. I had no charts and had no idea how to get them. I did eventually sell for a small profit even though I had no idea what my entries looked like chart-wise. The trading fees ended up eating all but $10-$20 in profits.

Later in 2016, I opened a Robinhood account because there were no fees. I ended up trading random stocks that seemed to be going up at the open. My account here was $50 to just play around with. I traded $F, $ALLY, and some random penny stocks that were up premarket. I made one really good $JAGX trade (dip buying at the open) and managed a $2 or so gain. This was pretty significant for a $50 account. I traded this account for several months and grew it to around $65. Not too bad but it did take forever. Eventually, I tried some overnight plays on some hot stocks. I was up premarket but got screwed by Robinhood because you need at least $2,000 in your account to trade premarket + a $10 monthly fee. Never again. Not to mention I couldn’t even sell at the open with a market order because the executions were so bad! I will say one good thing about Robinhood, if you plan to swing trade and immediate executions are not something that matters a whole lot then it can be used.

Some time during my Robinhood journey I opened an OptionsHouse account (now E-Trade) because of the free charting platform and $4.95 trades. Here is where I finally bought $AMD stock. My initial position was 100 shares at $3.77. I added along the way and finally sold all of my 530 shares at $14.50 in 2017.


Buy Why $AMD?

From 2002 up until 2007, I had always owned AMD processors. They were simply better during this time period. Intel outpaced them significantly with the Q6600 (LGA 775) and then the i7 920 (LGA 1366). AMD fell back and their stock price followed suit. I heard AMD was planning a new line of CPUs (Zen) and GPUs (Polaris/Vega) in 2016-2017. I knew I had to buy some stock since it was still severely undervalued (if AMD went under, Intel would have a monopoly on the x86 CPU market - does VIA really count?). The hype train drove the price up from $3.50 to $6 to $7.50 (then dilution) and $8.50 then $10 and eventually up to $15. I learned a lot from this stock.

I actually bought their products with some of the trading profits since I am still a software developer and my i7 970 was starting to show its age. R7 1700X + RX Vega 64.

$NVDA also made an amazing move during 2016-2017. Up from $20 to $170. It was kind of outside my price range and each massive leg up felt like it was the top so I never bought in.


I traded a few stocks at OptionsHouse in 2016 and 2017 but never really had any success day trading. I lost a little (between $10 and $80) or had small gains (no more than net $10) a few times but managed to get out when it wasn’t going my way. I really had no idea what I was doing and it was before I started getting serious.

In late 2016, I found Timothy Syke’s YouTube videos and watched a few. I looked for as much of his content as I could possibly get my hands on to determine if he was legit or not.

Before Tim, I had watched a ton of different people on YouTube trying to understand how day trading worked. Looking back, their information was probably legitimate, but it was never really that useful to me. I was missing pieces.

2017

At the beginning of 2017, I signed up for Pennystocking Silver so I could get trade alerts and video lessons. Unfortunately, I learned that you cannot follow alerts because you will not have the same entry and you will not know when to exit the position if it hits a goal or starts tanking. I wanted to just follow the alerts, try to learn a little, and make some money while doing it. At least that’s what I thought the point of the alerts were for.

For a few months that’s what I tried to do - follow the alerts if I liked the setup and profit. I ended up getting in way too late based on the alert commentary and any gains I had were so small it wasn’t even worth the day trade.

I decided to study more:

  • Pennystocking
  • Pennystocking Part Deux
  • Shortstocking
  • Trader Checklist
  • TIMraw
  • Pennystocking Framework
  • Spikeability
  • TIMdicators
  • Learn Level 2
  • Trading Tickers - need to watch the NASDAQ parts again
  • Video lessons
  • How To Make Millions - almost finished

These DVDs and video lessons seem to have helped me. I’m recognizing patterns more easily and when I should dip buy or short. I have yet to place any trades based on the information I have learned because I’ve had those annoying losses in 2016 - being wrong on almost every trade. I’m afraid I’ll lose money or be wrong. So for now I’m just watching the market and trying to build up the confidence to place a trade when I know the setup is solid.

“I cannot fear to be wrong because I never think I am wrong until I am proven wrong.” - Jesse Livermore

I’m also reading a few books:

Profit.ly Chart

At the time of this post (9/11/17) you can see in the chart that I have barely made any trades from April to September. During this time I have been watching the DVDs and video lessons. I have decided not to add any trades that began in 2016 (before I found Tim). You might also notice that I have traded $AMD a few times. This is because I have been watching this stock since I first bought it back at $3.77. It also moves very slowly which is good and bad. Good because you can buy/short and not worry about being down a lot instantly. Bad because it takes an entire day for the stock to move in any direction and sometimes it’s just sideways.

What I need to do now is practice with small 100 share positions. It is possible to profit with just 100 shares if you are trading the right stocks. I have paper traded with Interactive Brokers and it was useful, but it’s hard to take seriously when everything is fake and you have no money on the line.

Watchlist

Building a watchlist becomes easier over time. What you should do at the end of each day is look at the biggest % gainers under $30 with over 500K volume (ideally 1M). This is what I use to pick up the most actively traded stocks for that day.

Here’s a simple screener on finviz for after hours. You want to look for stocks that have news and ideally near breakout levels. They are not immediate buys/shorts. You have to see what the stock does during the day. You should also watch them for several days because they have the potential to run for multiple days in a row. It’s usually not just straight up for one day and straight back down the next. However, on the 3rd up day it could be the last. It’s hard for a stock to keep running for 3 days in a row. Just be careful when going long on the 3rd day.

Scanning during premarket/market hours is a little different. Your broker should provide the tools to actively scan the market. You want to look for:

  • $1 to $30
  • At least 50K volume
  • Ideally small cap (< 100M market cap)
  • Sorted by % gain

You can look at stocks below $1 but I can’t trade them because the fees would be outrageous at Interactive Brokers.

How do you know which ones to trade? That is where studying and watching the market comes in. Just because the stock is moving up or dropping doesn’t mean you should immediately jump in.

My Goals

Ideally I’d like to make enough trades to become a millionaire over time. This is a long term goal. For a shorter term goal I just want to be consistently profitable and be able to have financial freedom without having to rely on anyone else. Being able to make a few hundred or a few thousand per week would be amazing and what I want to work up to. It can happen!


Part 2 - Selecting Stocks and Analysis



Disclaimer

I am not a registered financial adviser/broker/anything. Use this information for entertainment/informational purposes only. Any tickers mentioned are not recommendations to buy/sell/or sell short. They are used as examples only.